FREQUENTLY ASKED QUESTIONS ABOUT
ROI

These are some of the frequently asked questions posed to us during ROI training sessions, conferences and consulting sessions:

Q: What is ROI?

A: ROI is a measure of the financial benefits obtained by an organisation over a specified period in return for a given investment in a learning programme. In other words, it is the extent to which the benefits (outputs) of training exceed the costs (inputs).

Q: Why is it essential to determine the ROI of training programmes?

A: Calculating ROI gives the training manager an opportunity to measure the financial value of a training programme. This helps the training manager to improve his or her credibility in the organisation by being able to talk the language of line management in showing the tangible benefits of training.

Q: If ROI is such an important concept, why are so few training managers actually doing it?

A: Training managers realise the importance of ROI, but they do not know how to measure and calculate ROI. Training managers are more interested in the number of courses they run than in the value these courses add to the organisation.

Q: What are some of the pitfalls regarding ROI?

A: The most important pitfall is to compare apples with pears! Make sure that you measure what you are supposed to measure, and that you know all the different cost and benefit items so that you can calculate an accurate and realistic ROI.

Q: What is the relevance of performance management for ROI?

A: Performance management is of paramount importance for ROI, in fact a well-developed performance management system that includes clear measures, forms the basis of any ROI system. By identifying performance gaps and addressing these gaps by means of training, can provide useful information for ROI measurement.

Q: How can ROI support the balanced scorecard?

A: ROI provides information that can be used at the learning and growth component of the balanced scorecard. By indicating specific training measures, tangible data is created that can be used to implement the balanced scorecard.

Q: What is the difference between the ROI ratio and NPV?

A: The ROI ratio indicates the percentage return on the investment (eg.150%), while NPV gives you the rand value of the return on the training investment (eg. R50 000).

Q: What is a good ROI ratio?

A: There is no rule pertaining to what a good ROI ratio is. Each training course is different and different ROI ratios are therefore expected. However, for certain types of training, such as sales training, ROI ratios of more than 500% have been reported. In general, ROI ratios between 0% and 5000% have been achieved.

Q: If a low ROI, let us say 10% has been reported, does it mean that the training was bad?

A: Not necessarily. A low ROI can not always be attributed to ineffective training. There can be many factors in the work environment having an impact on ROI, eg. support provided by supervisors and colleagues, the culture of the organisation, market conditions etc.

Q: Is it difficult to calculate ROI?

A: Not at all, in fact, it is quite easy. All you need to do is some form of a pre- and post measurement of performance, as well as determining all your costs as well as the financial benefits of training.

Q: Should ROI be calculated before or after training?

A: Before and after training. ROI can be forecasted before training in order to determine whether it is indeed worth it to continue with the training. ROI should also be calculated after training in order to determine the real costs and benefits of the training.

Q: Can ROI be calculated for soft skills training?

A: While it is certainly more difficult to calculate ROI for soft skills training than for technical or other training, it is indeed possible to calculate ROI for soft skills training. The challenge is to determine the cost items and benefits of training. The solution does not lie in the "skills", but in the outputs achieved in terms of the financial benefits as a result of the training. For example, when evaluating the ROI of a diversity training programme, consider all the potential financial benefits that can be measured, eg. more business from diverse markets, less grievances relating to diversity, higher employee retention, less absenteeism etc.

Q: If there is an improvement in performance after training, how do we know whether it can be attributed to training? Surely there are other factors that also play a role.

A: There are various techniques available to isolate the effect of training. In other words, it is necessary to differentiate between the training and non-training factors. Some of these techniques are trends analysis, the use of control groups, and customer inputs.